It may be the case that the Berkshire Hathaway Share Price has performed no worse than many blue chip stocks so far this year, but with investors wondering whether its 90 year old supremo has lost his magic touch, and Apple is such a big percentage of its holdings, some are wondering whether the investment company has seen its best days now that we are in a pandemic environment?
Investments like the quick win in the Snowflake IPO may start to become more common and more necessary to maintain growth for BRKB shares.
The BRKB share price falls 11% in 2020
While it is the stuff of legend to quote how much a $1,000 investment in Berkshire Hathaway shares would have made you from the start of Warren Buffett’s career, tens of millions of dollars being the answer, some of the shine has started to come off BRKB shares so far in 2020.
While the COVID-19 pandemic is clearly a factor, there would appear to be more to the 11% loss for the Berkshire Hathaway share price so far this year than just stock market trends. This point is underlined by the way that the BRKB share price fell 5% in October alone.
Berkshire Hathaway shares benefit from snowflake’s IPO
While BRKB shares have so far struggled this year, there have been positive highlights. The most noteworthy in the near term was the $735m investment Berkshire Hathaway made in cloud data technology group Snowflake as it floated on the US market at $120. In September they initially peaked at $319, delivering a $1bn gain for Berkshire Hathaway.
While this was a significant win, it highlighted two reasons that the Berkshire Hathaway share price has not only underperformed, but also not been able to match the glory years of its early decades.
Have BRKB shares just become a play on Apple?
Although tech stocks came into focus in a high profile way during the time of the Dotcom Boom in 1999-2000, it has been in the aftermath of the Global Financial Crisis in 2008 where so called FAANGS stocks have stretched to trillion dollar valuations, dwarfing old economy companies. The FAANGS such as Google, Apple and Facebook were clearly momentum plays, rather than value stocks that Warren Buffett and the Berkshire Hathaway share price rise had previously been based.
However, as if to compensate for this omission, from 2016 Berkshire Hathaway shares biggest holding has been Apple. As of the end of September 2020 49% of Berkshire Hathaway comprised of Apple shares. The initial $35bn investment has nearly tripled in value. However, this does beg the question whether investors should just invest in FAANGS stocks, rather than buy Berkshire Hathaway shares?
Can Berkshire Hathaway shares outperform again?
Historically BRKB shares were founded on the concepts of blue chip companies, with recurring income, which were long term investments - sometimes decades long. For instance, Coca Cola is a core holding for Berkshire Hathaway shares, and has been with the holding company for more than 30 years. Kraft Heinz has been a rather more problematic holding, but fits the bill of being an evergreen consumer staple. The issue now for those looking to see Berkshire Hathaway shares soar to previous heights the stock market will have to end its love of technology shares, and return to the traditional names. Even in a time of pandemic when there has been some return to consumer stocks, so far this pales into insignificance relative to the big tech names.
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BRKB shares: paying dividends
Fashions on the stock market come and go, and while technology is the current fad, it should be remembered that the Berkshire Hathaway share price has been based on long held dividend plays, not quick position flipping.
For instance, Warren Buffett’s entry on Coca Cola shares was so low and so long ago, BRKB shares received a yield of 50% on the holding. This is a performance that few companies can either match or sustain.
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